Intel making big bet on ‘convertible’ device

Commentary: Chip giant hopes new devices will juice PC sector

SAN FRANCISCO (MarketWatch) — Intel Corp. is putting a lot of hope in the murky PC market, especially on the notion that consumers might start snapping up the types of laptop-tablet hybrid devices that have so far failed to make much of a splash.

In the wake of Intel’s
INTC, +0.14%
fourth-quarter results, Wall Street is fretting about its hefty capital spending plans for the year, and an outlook that is assuming a much better second half of the year. The biggest underlying fear is that the company could be left with under-used and very expensive factories. Read about Intel spending plan worries.

With the PC market still in a funk, Intel is placing hopes on new breeds of devices, including those that fall into a category it calls “convertibles,” which are hybrid, clam-shell devices with a keyboard like a laptop, but include a touch screen that can fold over and act like a tablet.

Lenovo

Lenovo’s Yoga 13 convertible tablet/notebook is one of the devices Intel and others hope will catch on with consumers.

Intel executives talked about the array of new hybrid devices demonstrated at the Consumer Electronics Show earlier this month.

During its call with analysts, Intel executives talked about the array of new devices that were demonstrated at the Consumer Electronics Show earlier this month that embrace a new form and could rejuvenate the PC business.

“At CES last week, I was struck by our industry’s renewed inventiveness. PC manufacturers are embracing innovation as we are in the midst of a radical transformation of the computing experience with the blurring of form factors and the adoption of new user interfaces,” Intel CEO Paul Otellini said on the call. “It’s no longer necessary to choose between a PC and a tablet.”

Most of these so-called convertibles and detachables (where the screen comes off and acts like a tablet) use Windows 8 and Intel chips, which Otellini says will give consumers a “two-for-one, no compromise computing experience.” Intel is clearly putting a lot of hopes on these new converged devices, hoping that they can steal some of the popularity of tablets.

On Thursday, investors should get some specifics on how the first version of the Microsoft Surface is doing, as well as the company’s new Windows 8 operating system, which incorporates touch. But those results won’t include the Surface Pro that was designed around Intel chips that run Office. Microsoft’s first Surface RT was designed around an ARM Holdings Plc-based chip, while the Surface Pro will ship this month.

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ARMH, -1.18%
“The Windows 8 cycle is clearly off to a very slow and disappointing start that has been well-reported in the press,” wrote Nomura Research analyst Rick Sherlund. “In large part, this reflects the fact that this is not a simple upgrade.”

So the investors who are sticking around are now pinning hopes for some sort of a rebound in the PC industry in the second half of the year. Many of the new convertible designs will come out once two new Intel chips are available.

One of the chips, code-named Haswell, coming in the first half of this year, was touted by Otellini last week as a chip that will enable “one of the most significant changes to the PC since Centrino in 2003.” The chip is expected to be so low in power consumption that devices can run 10 hours in battery mode. Another forthcoming chip is code-named Bay Trail.

In an interesting twist however, the general tone among many analysts who follow the chip maker was far more pessimistic versus some who follow software. “We remain skeptics,” wrote Chris Caso, a Susquehanna Financial analyst who follows Intel.

In contrast, software analysts like Sherlund seem more optimistic about the second half of the year. He noted that with the new chips from Intel, “At least Intel and Microsoft will be getting to all-day battery life and higher performance and lower prices later this year, even if ARM will still retain advantages.”

He said he expects the so-called “Ultrabooks,” the PC industry’s answer to Apple Inc’s
AAPL, -0.87%
Macbook Air, to come down aggressively in price, and he expects the year 2013 will end up with flat PC units, and units could be up 5%, if Windows-based tablets are included.

So until the new chips are out later this year from Intel and investors can get a sense of how the new types of devices are received by consumers, Intel investors may remain in limbo.

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